What Shape Will the Market Take?

A lot of analysts and economists are expecting the recovery in the market to take a W form. They think this rally is unsustainable. They think that we will see another type of meltdown within the next 6 to 12 months. I completely disagree. They only terrible news that we could have had is disappointing Q3 reports. We have not seen that at all.

An article I read on CNBC stated that 70% of Q3 earnings reports have been positive. Many of these companies lowered estimates in Q4 and Q1 that helped the market to reach its bottom in March. Now we are seeing companies raise estimates and give much better outlooks this quarter. Many companies think the recession has bottomed and may be over at this point. YOY growth declines will continue to decrease as we go into Q3 and Q4. Since this is when growth started declining last year, it will not be so hard to match those numbers this year. I think on the earnings front, as we move into the last half of the year and even into the first half of next year, it will be easier to beat YOY numbers and estimates will be raised.

On the economic level, I think we have hit bottom. We are seeing more and more positive housing numbers. We have seen bank losses dwindle. I think unemployment will start decreasing this quarter. In short, we are ready for the rebound. TARP money is being repaid, companies have neared the end of their layoffs and plant closures, and the declining dollar should raise sales and profits.

Historically, the market sees a rebound before the economy. We are seeing that rebound now. The economy will soon follow. I think the shape of the market will be a elongated V shape. It wont just rise back up quickly, but it will not go back down either. We are done seeing consistently negative news. Everything is on the mend. The only thing against us is time. It will take longer than most people will want; however, as long as we are patient we can find deals everywhere. Cash money is all over the place. Don't be afraid to go looking for it again. It will be a long time before the Dow hits 14,000 again. While we are waiting, we might as well look for the once in a lifetime deals and make cash money.